Published Date: 27 June 2006

Welcome address by Mr Kola Luu, Executive Director, Financial Markets Development Department, MAS, at the Real Estate Investment World, 2006 Raffles Convention Centre, 27 June 2006, 8:55 am


1   Good morning, ladies and gentlemen.  I am delighted to be here this morning to welcome such a distinguished group of experts from the real estate industry.  To our overseas guests, let me bid you a very warm welcome and I hope that you'll have a productive and enjoyable stay in Singapore. 

2   In the past decade, the global Real Estate Investment Turst (REIT) market has registered healthy growth.  Aging population around the world is changing the way in which pension funds are being invested.  Investors are increasing their asset allocation to real estate as a source of diversification, capital stability and income stream.  However, a major hindrance to investments in real estate is its illiquid nature.  The demand for real estate exposure has thus accelerated creation of securitization vehicles to provide liquidity to investments in real estate.  These factors, in conjunction with sustained low bond yields around the world, have set the stage for the growth of REITs globally.

3   Success of REITs in markets such as US and Australia have motivated Asian and European jurisdictions to facilitate their own REIT markets through judicious regulation and tax incentives.  In the past few years, Belgium, France, the Netherlands and Luxemburg have all introduced REITs regime.  UK is expected to roll out its REITs regulations next year and Germany is studying this matter closely.

4   In Asia (ex Japan), Singapore was the first to introduce a regulatory and tax regime for REITs, and witnessed the first REIT IPO in year 2002.  Since then, other Asian markets, such as Hong Kong, Malaysia, Taiwan, Thailand have also introduced REIT regulations which further facilitated growth in the region.  Other Asian countries such as India and Pakistan are looking towards similar rules. 

Growth of REITs in Asia

5   Although still in its infancy, Asian REITs markets show strong potential for growth.  There are over 50 REITs in Asia  with market capitalization of over US$40bn.  Total investible grade real estates in Asia is estimated to range from US$1.3 to US$1.4 trillion .  The REITs market currently represents less than 3% of the investible market.  There is therefore plenty of room for growth but I will leave it to the industry experts who will be speaking during the conference to provide more detailed projections of potential market growth for Asian REITs!

Development of REITs in Singapore

6   Currently, Singapore has one of the most progressive REITs regime in Asia.  In 2000, Singapore was one of the first Asian markets to offer REITs when we made changes to our regulatory framework and introduced tax incentives to encourage the listing of REITs in Singapore.  Since the listing of the first REIT in 2002, the Singapore REITs market has grown exponentially in the past four years to almost S$12 billion  in market capitalization with 10 REITs listed, offering investors' exposure to income streams ranging from shopping malls, office buildings and industrial properties.  The market cap weighted average returns of Singapore listed REITs since IPO has been exceptional at over 30% .

7   Several factors have led to this phenomenal performance.  The robust regulatory framework and attractive tax incentives have hastened the growth of REITs.  In light of the rapid development of the market, the MAS reviewed and updated our REIT regulatory regime last year to take into account international best practices and market developments.  The changes have been made in consultation with the industry and serves to enhance the operating environment for REITs.  The revision covers areas such as the licensing of REIT managers, alignment of the interest of REIT managers and unit holders, and investment guidelines. 

8   The Singapore government has also provided several tax concessions to help further develop the market.  They include:

a) Tax transparency at  the trust level,
b) Remission of stamp duties on transfer of Singapore properties into REITs,
c) Reduction of tax rate for non-resident institutional investors from 20% to 10%, and
d) Tax exemption for foreign-sourced income.

9   These measures, coupled with tax exemptions on investment income of individuals, makes Singapore one of the most competitive investment regime for REITs.  The Singapore authorities have worked closely with industry players to ensure that issuers are able to bring S-REITs to the market in an efficient and timely manner.  These set of changes have nurtured the growth of S-REITs market and would remain critical in ensuring the further development of the market.

10   Overall market environment has also been timely for the creation of S-REITs market.   The historically low interest rate environment in recent years makes S-REITs an interesting proposition for investors.  For REITs issuers, the lower cost of capital in Singapore provides an access to more cost-effective funding for acquisition of new assets in the region.   This factor will be increasingly attractive to REIT managers in the region as they seek lower costs of funding to finance asset growth.  We have also been fortunate to have a group of established brand names in the region such as Ascendas, Capitaland, Cheung Kong, Macquarie, and MapleTree, to kick start the S-REITs market.  Last but not least, the attractiveness of the Singapore REITs market is due in no small part to our strong corporate governance regime.  Singapore continues to top international rankings , as the leading Asian economy in the area of corporate governance standards. 

11   Given the growth prospects of the industry, market participants have come together to establish an association, the Asian Public Real Estate Association (APREA) in Singapore, which was in fact, launched at this same conference last year.  APREA is modeled after similar initiatives in the US and Europe, where industry bodies such as the National Association of Real Estate Investment Trusts (NAREIT) and the European Public Real Estate Association (ERPA) have been instrumental in providing industry feedback towards the development of their REITs markets.  We hope that APREA will act as catalyst for product innovation for the REIT industry and help educate Asian investors on the finer aspect of REIT valuation. More significantly, the set up of APREA here is an affirmation that Singapore is a location of choice for REITs in the Asia Pacific.  This is complemented by REIT conferences such as the one we're attending today.  Having conferences of this nature anchored in Singapore will further facilitate the confluence of idea exchanges among issuers, research analysts and investors.

Growth of S-REITS

12   Despite strong growth of the S-REITs market thus far, regional competition is keen as other jurisdictions have a natural advantage over Singapore in terms of size of domestic real estate portfolio.  So how do we position ourselves and where do we see the growth of S-REITs market? 

13   Despite recent market volatility, pipeline of REITs seeking listings on the Singapore Exchange remains strong.  We have seen a growing diversity in our market, both in terms of asset classes and regional representation.   Besides the traditional assets of office spaces and commercial buildings, investors can look forward to Asian hospitality and healthcare properties being injected into a REITs vehicle.  Singapore REITs will also provide exposure to regional markets such as China, Indonesia, the Philippines and Vietnam, just to name a few. 

14   In line with our strategic intent to develop Singapore as the Asian REITs center, we have moved

[in Budget 2006]

to broaden the tax exemption on foreign-sourced income to include foreign-sourced interests and trust distributions for Singapore listed REITs.  This is to facilitate the growth of existing S-REITs as they expand beyond the shores of Singapore as well as to make Singapore an attractive proposition for regional issuers in their consideration of listings destinations. 

Beyond REITs

14   Looking ahead, we believe that there is tremendous scope for Asian REITs to grow.  The confluence of aging demographics, under-funded international pension liabilities in the developed economies and Asian nations hunger for capital to finance its growth, provides an opportunity for Singapore to intermediate this flow.  REIT, as a product class, has and will continue to be well-positioned as a conduit to this flow. 

15   However, REITs as a fund raising tool is by definition limited for real estate related assets.  Beyond real estate, we hope to capitalize on the success and popularity of REITs to grow other innovative new structures for the securitization of the wider category of infrastructure assets.  We have already seen the first listing of international infrastructure fund in Singapore.  Another example of product innovation that has spun-off from the S-REIT market is that of a stapled structure, an adaptation of the REIT regime to package infrastructure products for access to international capital markets.  Yet another innovation has been the introduction of our first  shipping trust, which utilizes our newly introduced Business Trust legislation to provide an efficient platform for investors to gain exposure to shipping sector.

16   Introduced in January 2005, BTs are business enterprises set up as a trust structure but which contains elements of companies and trusts.  A BT is created by a trust deed under which the trustee has legal ownership of the assets of the business enterprise and manages the business for the benefit of the beneficiaries of the trust.

17   One key characteristic of BT framework to note is that it allows for distributions to be paid out of cash profits, as opposed to accounting profits.  BT is thus well suited for businesses with stable cash flows but large capital depreciation expenses.  The BT structure is widely used in jurisdictions such as Australia, Canada and the US.  Given the growth of infrastructure investments in the region, there is opportunity for issuers to tap international capital markets via Business Trusts structures in Singapore.  The BT regime is a natural extension to the S-REIT framework to allow owners of infrastructure assets to tap into yield sensitive investor pools in Asia and the global markets.


18   To conclude, I must say that this is an exciting time in the phase of capital market development in Singapore and Asia.  Global fund managers are increasing their exposure to Asian securities to participate in the growth of our economies.  Capitalizing on the success of REITs, Singapore hopes to serve the broader infrastructure financing needs of the region via various structured financing routes, including infrastructure funds and business trusts.  These products will create new asset classes for investors and add more depth and sophistication to Singapore's capital markets.  To achieve this, we would need industry participants to continually work on progressive capital structures and investors to increase their understanding of the risk-return profile of these instruments, beyond the headline yield figures.  Conferences such as this, would serve as a good platform for cross-pollination of ideas and wider investors' education.  

19   I wish all of you a fruitful and productive conference.